U.S. Tobacco Giants Hike Cigarette Prices
Philip Morris USA, Reynolds American and Lorillard are set to increase prices on their cigarette brands.
After Altria, the parent company of Philip Morris announced its cigarette price increase two weeks ago, its main rivals, Reynolds American and Lorillard admitted to follow the trend, approving five-cent price hike.
David Howard, senior communications manager at Reynolds American, said that the price hike would affect the company’s flagship brands, Pall Mall and Camel, and the support brands, including Winston, Kool, Salem and others. The price increase took into force last week.
He mentioned that the latest price change is a list-price rise intended to the cigarette-maker wholesale customers. Howard admitted that the company does not comment on retail prices, as they are set by the wholesalers.
Christina McGlone and Andrew Kiely, Deutsche Bank analysts said in their report that they consider the latter changes as indicator of industry rationality, and positive pricing environment in all market segments. The analysts mentioned that it would be the second price increase for Reynolds American, following the last increase of nine cents per pack introduced in July.
Nik Modi, analyst at UBS Securities LLC, confirmed that Lorillard would as well approve a six-cent per pack price increase for all its cigarette brands, starting from December 12, indicating the Newport potential to win more market share despite increased price.
According to Greg Mathe, spokesman for Philip Morris USA, the company increased the price of all its brands by five cents per pack on December 12.
Bonnie Herzog, senior industry analyst at Wells Fargo said that PM USA increase in list prices is seen as positive in light of the company’s latest changes to its new Marlboro Leadership Price strategy scheduled to come into effect on January 1, as this increase ought to satisfy the retailers, because it allows them raise their margins.
Herzog admitted that since the tobacco consumption would continue to drop, pricing is essential to ensure growth.
Nik Modi was first to predict the price increase considered by the Big Three cigarette makers in December, saying that such price changes would be part of normal pattern.
In a follow-up note, Modi, said the analysts expect the major tobacco companies to continue a rational pricing environment.
The five main reasons for the positive price environment included that product pricing is key to out performance of the stock, price margin between premium and low-end brands are at all-time lows, Reynolds American Inc and Altria have a large product portfolio, not limited to cigarettes, the Big Tobacco has secured more share of the discount category of the market and Altria might trip debt covenants.
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